Suppliers see little improvement in relationship with automakers, survey finds

May 13, 2013

DAVID PIERCE/DETROIT FREE PRESS

Written by

Detroit Free Press Business Writer

The rebounding auto industry is dependent on a strong supplier base to thrive, but a sweeping survey released today suggests a disturbing complacency among major automakers in strengthening this key relationship.

And comments from suppliers about their relationship with each automaker reveal a growing concern that Detroit’s automakers are returning to their old adversarial ways, said John Henke, CEO of Planning Perspectives of Birmingham, which conducts the annual survey that takes the pulse of the most important relationship in the auto industry.

The results suggest automakers have failed to implement focused plans to improve their working relations with suppliers.

“To say this year’s results are disappointing would be an understatement,” said Henke, who quantifies the supplier responses into a Working Relations Index. A higher number reflects a stronger relationship.

Automakers rely on suppliers for as much as 70% of a vehicle’s content. A strong relationship is crucial if automakers expect suppliers to provide them with their most innovative ideas and products, their best prices and a willingness to invest in capacity around the world to support global expansion.

Suppliers helped automakers, especially the Detroit Three, weather the downturn by renegotiating contracts, downsizing and restructuring pay schedules. The respect and teamwork forged in 2008 when industry sales began to plummet appear to be eroding as automakers accrue greater profits. As volumes increase, so do demands for lower costs on parts.

Suppliers also shared in the devastation and rebuilding of the Japanese auto industry following the Japanese earthquake and tsunami. They expressed some disappointment that relations with these automakers remain flat or, in the case of Honda, have fallen to their lowest level since the study began 13 years ago.

Supplier support will be more crucial with automakers planning a busy schedule of vehicle launches over the next few years.

Despite some love lost, Toyota and Honda are still the best automakers to work with, according to the 441 Tier 1 suppliers surveyed.

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Ford is the top domestic automaker, coming in third overall, followed by Nissan, General Motors and Chrysler. Only 6 points separate the bottom three.

The survey of 583 people from the companies represents 61% of the annual purchase total of the top six automakers. Relations are becoming more homogeneous with only 47 points separating Toyota at the top with 297 points and Chrysler at the bottom with 250 points. By contrast, in 2005 the gap between Toyota and GM was 301 points.

Automakers have experienced the competitive edge that comes from a strong and trusting supply base, Henke said. “But as soon as sales start going up, everything is forgotten.”

The comment portion of the survey revealed a pattern of concern, Henke said.

One supplier said the Detroit automakers “seem to have forgotten the help we gave them during the 2008-2009 recession because they’re back to their old tricks.”

“Too many people in the Detroit Three still view suppliers as the enemy,” Henke said. “That’s just foolhardy. When you spend 60%-70% of your revenue on suppliers, you are heavily dependent on them. You can still be very demanding, have high expectations, hold the bar higher, but you can still do that in a respectful manner. That’s the whole point of supplier relations.”

Ford purchasing chief Tony Brown was pleased the automaker was the top “Preferred Customer” among suppliers and most likely to “invest in new technology.” Brown said supplier relations are a top strategic priority and Ford is “taking actions for continued improvement.” His goal is to “build on our prior gains and ensure that Ford is our suppliers’ customer of choice, especially with next-generation technology.”

At GM, improving supplier relationships is a top priority, said Grace Lieblein, head of global purchasing. “While we’ve made significant progress in the last several years, we know we have more work to do,” she said. “We continuously seek ways to work in partnership with our suppliers, and our goal is to turn this collaboration with them into a competitive advantage.”

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Chrysler remains at the bottom. Its steady improvement appears to have stalled somewhat, Henke said.

Scott Kunselman, head of Chrysler purchasing, said he knows a motivated supply base is critically important and that the work to improve operations and processes is being felt by parts makers. But, “we know we have a lot more work to do in the area of supplier relations.”

“We are continuously looking for opportunities to strengthen our relationships even further,” he said.

Toyota’s head of North American purchasing, Robert Young, said the results will be used as a “valuable learning opportunity to help improve our relationships and the way we conduct business.

“While we appreciate our ranking position, we clearly understand there are areas for improvement,” he said.

Honda registered its worst score since the study began.

“The twin natural disasters of 2011 forced us to slash production, then rapidly ramp up in 2012 to meet customer needs — and we are fully aware that this made business difficult for some of our suppliers,” Honda spokesman Ed Miller said.

“Now, we are working proactively so that our suppliers will view Honda as their OEM of choice in the future. Anything less than that is not satisfactory to us. As we continue increasing our investments in North America, we know this will create even greater opportunities for our suppliers.”

Planning Perspectives started studying German automakers in 2010. BMW improved the most last year, scoring 324 — highest overall among the nine automakers. Volkswagen scored the lowest of the automakers, at 231.

Henke said the results should serve as a wake-up call for automakers to focus more energy on their supplier relations.

“They need to get out of this mode where the suppliers are enemies because it will be good for everybody. When the automakers make money, the suppliers do too,” Henke said. “That’s the real beauty of all this.”